Back to the Future of Cyber Insurance

Written for an insurance trade publication, this brief essay identifies five ways that insurers manage uncertainty in selling cyber insurance: (1) providing valuable services beyond risk transfer; (2) contract design, (3) rapid iteration of pricing and forms, (4) limits management and reinsurance, and (5) claims disputing. Cyber insurers provide easy-to-price loss prevention and mitigation services so that the value proposition includes more than the (difficult to price) risk transfer. Cyber insurers design their contracts to include narrowly defined categories of coverage, typically with separate limits and with claims-made coverage for liability risks, and traditional insurers design their contracts to limit exposure to cyber risks. Cyber insurers frequently update their policy forms and pricing in reaction to changes in the risk environment. Cyber insurers employ limits management and reinsurance as complementary strategies to mitigate the effect of changes in cyber risk that occur more rapidly than their pricing or forms can adapt to. Finally, claims disputing clarifies the meaning of insurance policies and, thus, the boundary of risk transfer in both cyber and traditional insurance policies